For an Interplay of Ideas

In my last blog, Have we become a hedgehog factory?, I opined that our schools and work environments were nurturing the hedgehog mindset so completely as to snuff the life out of the foxes in our ecosystem. I submit that this approach jeopardizes the long-term survival of our businesses.

Every successful business has its hedgehog concept, the core driving principle that enables it to leapfrog over the competition, wow its customers, squeeze out costs, deliver unique value, . . . or whatever other unique differentiation it has developed to become successful. The success of the business is a direct result of its core driving principle and hence it builds an organization and institutes processes that are tightly aligned with its core driving principle. As the business continues to grow and garner more success, the positive-feedback loop causes its organization and its processes to become more rigidly aligned with its hedgehog concept (If I am succeeding, I must be right. So I should do more of the things that align and discard ideas that don’t fit in).

In the meanwhile, the world isn’t standing still. Markets are evolving driven by the increasingly free flow of goods, services and ideas. Business models are being disrupted by application of emerging technologies. Profitability of products are being radically transformed by leaps in production efficiency. The long-standing core driving principle of your successful business will eventually be threatened, one way or another. How will your organization and its institutionalized processes respond to these threats?

Remember that in a successful business, its organization and processes are rigidly aligned with its core driving principle because of the positive-feedback loop caused by its success. A highly successful business will exhibit strong confidence in its hedgehog concept and dismiss these threats initially because they will appear weak (poor quality, less valuable market segments, etc.). There are numerous examples of this in recent times. Remember Kodak, the iconic company that coined the term “Kodak Moment”. Their competitive advantages were in their technology of film-based photography and their distribution channels. They believed that digital photos could never take the place of high quality photo prints in the lives of their customers. In hindsight, it looks like they were in denial.

Eventually as the threat gains momentum and starts to erode revenues and profits, the business will attempt to put together a response. Given that the response is being crafted by an organization steeped in the hedgehog concept, it will play to its current strengths. It will focus on either defending its current competitive advantage or on ideas that leverage it. In the case of Kodak, when they eventually got past denial, they tried strategies like smaller cameras and digitally coded films. They were just force-fitting ideas from the digital world into their film-driven, print-photo business model.

Kodak’s traditional film business yielded margins of close to 70%. Their hedgehog concept had served them well. Ironically, the first digital camera was designed by a Kodak engineer, Steve Sasson. Can you imagine what response his invention must have garnered within the company? I can imagine engineering leaders at Kodak deriding the quality of photos from his digital camera with their film-based products. I can also imagine Kodak’s marketing teams talking about the power of their distribution channels and how poorly the channels for electronic products compare with their own ability to reach the common man. Above all, I can imagine the executives at Kodak thinking about the 70% margins of their film business and pooh-poohing the cost economics of digital cameras.

Now imagine if Kodak had nurtured a cohort of foxes within their organization. These foxes would have picked up the weak signals exhibited by Steve Sasson’s invention. They would not have allowed it to be discarded on the basis of its initial sub-par performance. They would have challenged the power of Kodak’s traditional distribution channels by studying alternate digital channels that were starting to make inroads into customers’ lives. They would also have made a case to executives that market size of digital impressions on various display devices could be many, many times larger than paper prints and thus holding on to the 70% margin was nonsensical.

The more successful a business, the greater the need for a cohort of foxes in its organization. If you don’t have one, you should be worried.

“What do you want to be when you grow up?” Have you had to answer this question as a kid? I got asked this all the time. There are expectations that you will choose a specific career objective. All through our school and college years we are constantly goaded to come up with a clear and precise view of what we want to be and then to focus diligently and unwaveringly on getting there. Our education system is designed to make you conform, to train you in a structured way towards your career objectives. It teaches you how to think about a problem in a certain way and to apply known principles or patterns to arrive at an expected answer or solution. Think of all the Engineering and MBA classes that you may have taken and tell me if I am wrong.

And then comes our worklife. Here again, the mantra that we are asked to follow is to figure out a career path for ourselves and then work hard to move along on that path rapidly. We are expected to be disciplined and to stay focused on the course that has been charted out. If we are to do well on this journey, we have to align with the corporate culture and to focus on its mission. Our success in our worklife is determined by our ability to deliver towards a well-defined purpose within the company’s organizational structure. Have you ever gotten promoted for not fitting in?

As I ponder over the concept of the hedgehog and the fox, it appears to me that our educational system and corporate structures are designed to produce hedgehogs. This is not necessarily a bad thing. Hedgehogs accomplish big things in a structured manner. They produce predictable results and don’t waver from the core value proposition even in the face of grave challenges. The hedgehog approach is organized, consistent, disciplined and trainable. Wouldn’t you prefer that over chaotic, erratic, etc.?

Foxes are the rebels, the mavericks who don’t live by the rules. They operate outside the structures created by the hedgehogs. They don’t care for the accolades and rewards that are reserved for the hedgehogs. They are the exceptions and that’s how it should be. Imagine what would happen if everyone in the system is a fox. How would you organize a company where everyone is a fox? Would it even be possible to have repeatable processes with predictable results if everyone in the system is a fox?

So, then the question is do we need foxes at all? After all, if hedgehogs can accomplish big things and are incredibly focussed even in challenging times, why tolerate the foxes? Is that why we hammer the foxes into hedgehog moulds? Are we making our hedgehog factory become 100% pure hedgehog?

In my next blog, I will make a case for having a cohort of foxes in your hedgehog factory.

Isaiah Berlin wrote an essay in 1953 categorizing people into two types – hedgehogs and foxes. Hedgehogs are people who have one overarching idea and align all of their thinking and their work around this idea. Foxes on the other hand are people who base their thinking and their work on many different ideas that they gather from a wide variety of sources. Isaiah’s essay resulted in a perpetual debate on who is better, the hedgehog or the fox.

Jim Collins in his book Good to Great, claims that the leaders who built ‘Great’ companies are hedgehogs. They all developed their strategy around a singular organizing principle about what their company was good at. They then maintained a fanatical and consistent focus on their singular organizing principle during execution of their strategy over long periods of time through various market and competitive situations. Leaders at the comparison companies on the other hand went in pursuit of growth and profits without latching on to a singular purpose. They jumped at emerging opportunities and reacted to market situations. Based on the financial results of the ‘Great’ companies in his list, he proclaims that hedgehogs are better at building great companies.

Now let us look at the opposite point of view. Philip Tetlock, a professor at Wharton and Berkeley, in his two-decade long study of decision-making, covering experts from a variety of fields, discovered that hedgehogs did not consistently make good decisions even in their own area of expertise. Their singular thesis did not serve them well over the long-term time horizon as outcomes get influenced by factors outside of their singular thesis. On the other hand, foxes stitch together diverse sources of information and continuously adapt to new learning over time. They are not tied to a single explanation or theory. In his view, foxes therefore do better at predicting the future and are successful at adapting to it.

Entrepreneurs have to build sustainable and scalable businesses. They also need to be able to deal with market upheavals, technology disruptions and competitive forces. Some of them have a grand idea and stay incredibly focused on executing that idea with fanatical consistency through thick and thin. This approach requires qualities that a hedgehog would possess in abundance. Others focus on innovating rapidly and iteratively bringing the qualities of interdisciplinary thinking, nimbleness and flexibility to deal with the challenges. These are strengths that are the hallmark of a fox.